January 27, 2012 7:59 pm

US in mega battle to bring in Mr Dotcom

The first thing Kim Dotcom’s neighbours did when they heard he had been refused bail was to get on their horses and ride the half-mile to his NZ$30m (US$24.7m) rented mansion and take pictures of themselves standing outside.

It was not a mawkish trophy hunt but rather the locals trying to reclaim their community by doing something they had been too frightened to do since the founder of Megaupload.com moved into the sprawling luxury estate in 2010. They had stabled their horses for fear that they could be run down by one of Mr Dotcom’s fleet of expensive fast cars.

Mega-Ipload

Mega-Ipload

“We were just so happy,” explains France Komoroske, a lawyer, who lives close to “Dotcom Mansion” – the most famous address in New Zealand right now – in the normally sleepy community of Coatesville, north of Auckland.

She remembers how Mr Dotcom’s luxury cars, bearing number plates such as MAFIA and GOD used to roar along the rural road. “Kids walk to school on the road. It’s not the place to be speeding,” she explains, recalling how the cars made a rumbling sound, “like a rocket”, that frightened the horses.

The road is now quiet again after the German millionaire’s fleet of 18 vehicles – including a Rolls-Royce Phantom Drophead Coupe and a 1959 pink Cadillac – along with NZ$11m of cash were seized just over a week ago, when police raided the mansion and arrested Mr Dotcom for his alleged role in a huge copyright infringement case brought by the US.

It is not just his neighbours who are captivated by the detention of the 38-year-old head of the file-sharing company. As the main character in one of the largest criminal copyright cases ever pursued by US authorities, his fate will be watched extremely closely by copyright owners and internet companies the world over.

The US authorities claim that downloads of pirated movies and music through Megaupload at its peak were responsible for 4 per cent of global internet traffic – although its defenders insist not all of that material was illegal. Some who see themselves as legitimate users have complained that they lost their files when the site was taken offline without warning, raising the possibility of legal action against the US authorities.

Nonetheless, the US Department of Justice accuses Mr Dotcom and six associates of making more than $175m in illegal profits from a massive worldwide internet piracy enterprise that has cost copyright owners more than $500m. The DoJ wants Mr Dotcom to face charges of conspiracy to commit racketeering, copyright infringement and money laundering. The last two charges carry maximum penalties of 20 years in prison.

But before he can face an American jury, the US authorities must convince a New Zealand judge to extradite him – uncharted legal waters in the long-running global battle against piracy.

Mr Dotcom, who denies the existence of what the DoJ calls the “Mega Conspiracy” and says he is not interested in restarting the business that earned him US$42m last year until the charges are resolved, faces months in jail after a judge this week denied him bail.

The judge cited a “significant” flight risk, due to his several addresses, identities and passports. Mr Dotcom’s Hong Kong address is given as a suite in the Grand Hyatt Hotel, which typically cost upwards of $1,000 a night.

In the past, Mr Dotcom has used chartered jets, helicopters and yachts, the prosecution submitted. He often filmed or photographed his antics, surrounded by glamour models or spraying champagne, posting them to websites such as YouTube.

Prosecutors also emphasised his convictions in Germany for hacking and insider trading. In 2002 he fled to Thailand, they said, before being arrested and deported to face charges.

Mr Dotcom has argued he was persecuted by the press, even posting a suicide note to his own website on his birthday in 2002, according to a report in Der Spiegel. Rather than fight the publicity battle, he emigrated to Hong Kong, where Megaupload was launched in 2005.

Even now, there is little love lost for the former Mr Schmitz in Germany, where his sudden re-emergence in the headlines prompted a collective groan from the local tech industry.

“I have a history in phreaking [telephone-network hacking] and encountered him virtually a couple of times,” says one German internet entrepreneur. “He was a jerk back then too.”

More than a decade later, his arrest and stories about his flamboyant lifestyle have dominated the front pages this week in New Zealand.

Mr Dotcom was hiding in a panic room with a loaded gun when armed police swooped on his rented property by helicopter just over a week ago. The possession of an unlicensed firearm was one of the factors cited by a district court judge when he rejected Mr Dotcom’s bail application on Wednesday.

“It suggests a level of criminality which to my mind could easily extend to exploiting criminal connections to obtain false travel documents and leave the country undetected,” said the judge, who added that there will be “a delay of some months until the request for surrender can be heard”.

Mr Dotcom, who denies any criminal misconduct, plans to appeal against the ruling, having volunteered for electronic tagging. He insists that Megaupload always complied with requests from content owners to remove pirated material and that the site was on the verge of launching a new music service licensed by the major record labels.

Several hip hop stars including P Diddy, Will.I.Am and Kanye West appeared in a promotional video for Megaupload last year, angering many in the music business. His lawyers declined to comment.

If the case of Julian Assange, the WikiLeaks founder who next week will take his year-long fight against extradition to the UK’s supreme court, is any guide, Mr Dotcom could spend many months yet in New Zealand, even before his US case can begin.

His arrest has triggered a fierce debate in the country about its residency laws.

Mr Dotcom was granted residency in December 2009 after agreeing to park NZ$10m in government bonds. He is one of 10 people to enter the country under the Investor Plus category.

Prime minister John Key was forced to enter the debate earlier this week saying officials checked that Mr Dotcom’s previous convictions for hacking and insider trading were subject to clean-slate provisions in Germany. “To be honest it’s not unusual for someone to be given residency in New Zealand who [has] previously committed a crime.”

In response to such concerns, an email appearing to be from Mr Dotcom was sent to his new neighbours in Coatesville that began: “First of all let me assure you that having a criminal Neighbour like me comes with benefits: 1. Our newly opened local money laundering facility can help you with your tax fraud optimisation.” It ended with him inviting the neighbours – who fretted he was hacking into their email accounts – around to share cocaine.

The clearly tongue-in-cheek message has backfired on him spectacularly this week.

However since the bail hearing Ms Komoroske, admits to feeling some sympathy for him: “He looked like a scared little boy [during his court appearance].” But her forgiveness only goes so far – she wants him extradited to the US and wonders how he ever passed the good character test.

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